Second tier retailers carve a niche for themselves in select markets

Retail looks forward to being given industry status – what does this mean to our friendly neighborhood retailer? Find out in the report below. Our pick of the articles this week is the one on second-tier retailers – read this heart warming story of success in small towns, which is really what the retail boom should bring to India.

Chillibreeze Business Research Team

General Plans and Information

Off-season sales hurt branded goods

Off-season sales, when shopping malls and high streets buzz with tempting offers of up to 70 per cent discounts on your favorite brand of shirts, jeans or even home textiles, are getting longer by the day. And this is eroding the margins of branded labels.

Leading consultancy firm Mckinsey has observed that almost 40 per cent of the branded apparel sales come from discounting. Market experts say that ideally the ratio between off-season sale and full price merchandise should be 20:80 respectively. But the current trend in the market suggests that the ratio is 50:50.

Rahul Mehta, president, Clothing Manufacturers Association of India, said, “Companies have started taking into consideration the larger share of discount sales in the production cycle. Excessive discounting has no specific advantage to any brand.” This season, Raymond has announced discounts simultaneously across all brands in exclusive stores as well as multi-brand outlets. Industry insiders said that though a certain amount of periodic sale is required to liquidate merchandise, the increasing competition is prompting customers to shift their shopping patterns. Nikhil Chaturvedi, director, Provogue said, “It is important to liquidate the merchandise as stagnant shelf spaces will not attract the repeat customers. The problem lies when brands go on year-round sale and customers do not tend to make full price purchases.”

The problem is hitting companies such as Madura Garments hard. The operating profits of the largest branded apparel player dipped by 7 per cent at Rs 19.8 crore for the third quarter ended December 2007. The company also posted a 28 per cent fall in operating profit for the second quarter over the corresponding period of the previous year. It attributed the dent in bottom line to higher discounts offered to meet market dynamics and high lease rentals for opening new stores. Mehta gives an example of Double Bull shirts that would be sold only during the sale period.

Ireena Vittal, head retail practices, Mckinsey, said, “Excessive short-term promotion can spoil long-term market behaviour.” She asserted that it is important for brands to communicate price proposition and ensure price discipline in the market as promotions are teaching customers to become bargain hunters.

Endorsing the view that heavy discounts will affect long term profitability B S Nagesh, managing director, Shoppers Stop, said, “The retailers need to work with brand managers as there is sale for almost six months of the year, affecting foot falls during the rest of the period.”

According to reliable sources, this discount season has been particularly dull for branded apparel players due to weak consumer sentiments.

February 11, 2008
Source: Business Standard

Second-tier retailing is a Smart Idea

Even within India’s retail solar system, not many would have heard of Anil Adamane from Nagpur or Rajasekar Reddy Seelam from Hyderabad . And if the names do ring a bell, it certainly won’t be beyond the vicinity of the cities they dwell in. They don’t enjoy the nationwide fame that’s reserved for the likes of the Biyanis, Ambanis and Mittals — yet Adamane, Reddy Seelam and their ilk are charting a course which, sooner or later, will bring them national recognition.

For they are the second tier of marketers who’re building up retail networks far away from the glitz and glare of the major metros. They have painstakingly built equity in their home turf and are now spreading their wings. From Bellezza saloon to 24Letter Mantra to Khadim’s to Witco, they are the emerging faces of specialised second-tier retailing in India.

Adamane and Reddy Seelam are shining examples of mini-metro entrepreneurship that stemmed from the desire to break out of the daily rut and chase opportunity. Adamane, an MCom graduate, was forced to start a daily provision shop in Nagpur for want of good job prospects. To augment his income, Adamane converted part of his shop into an ice cream parlour and STD booth, starting work at four in the morning and shutting shop by midnight. During his visits to the neighbourhood saloon for a shave, Adamane observed the business closely. “It was a dirty ramshackle hole in the wall, with hygiene being the last thing on the barber’s mind. Yet it was doing brisk business, and the wait sometimes was as long as 30 minutes,” he reminisces. That’s when he hit upon a unique service proposition: a saloon with an emphasis on hygiene, ambience and value pricing. Bellezza came into existence in 2003 with the first outlet in Nagpur. Today, Adamane runs 22 Bellezza saloons across Maharashtra, Gujarat, Madhya Pradesh and Chattisgarh. From a two-man outfit — with Adamane learning the craft on the job — Bellezza employs 300 people, and has a turnover of Rs 9 crore.

Out in Hyderabad, it took nearly two years for Reddy Seelam to get an efficient supply chain in place before he rolled out 24Letter Mantra, a retail format specialising in organic farm produce. Reddy Seelam says that launching the format was a culmination of a dream from the time he started working to starting a light engineering firm, which he later sold off. “It was a pure profit venture,” he admits.

His hailing from an agricultural family helped ease the task of convincing farmers to be a part of the venture. The first 24Letter Mantra started in 2005, and since then three more stores have been launched in Bangalore and Pune. “The spread has been slow. But in such a venture, one requires efficient procurement processes, given the nature of products we retail,” explains Reddy Seelam.

The evolution of formats like Bellezza, 24Letter Mantra, Yo! China and Khadim’s indicates an interesting geographic spread these players have envisaged. Yo! China, a quick service restaurant and takeaway chain specialising in Chinese cuisine, has outlets across tier I and tier II cities across India. Likewise, footwear retail chain Khadim’s started operations in Kolkata before moving to states in the east, south and then west. In Maharashtra, Khadim’s has presence in cities like Aurangabad, Nagpur, Sangli and Satara.

These players have adopted a bottom-up strategy, where the brand gets built in markets devoid of cut-throat competition, and then gets scaled up to major metros. Jim Lucas, director of retail ecology, Draftfcb, states that this phenomenon is largely unique to India, where small retailers are innovating even when it comes to expanding their network.

Adamane is clear that the small towns are where the potential is. His strategy is to look at small towns with populations of 40 lakh and target 1% of the population which owns cars and bikes.

Chennai-based premium luggage retailer Witco, however, presents a contrasting case of a regional brand which has shed its ‘small-pond aspirations’ and wants to compete across major metros. VP Harris, MD, Witco, reveals that five years back, the format gave up the positioning of a retailer of travel goods and accessories, a positioning that’s been in existence for nearly four decades. Harris says that post liberalisation, competition from overseas prompted Witco to relook at not only its positioning but also its physical presence.

Premium luggage and accessories was chosen as a plank, and Witco decided to exit small towns like Ooty, Salem and Trichy to focus on metros like Chennai and Bangalore. With 12 Witco stores across Chennai and Bangalore, Harris’ plans for forays into Western markets have hit a barrier — high real estate costs.

Kapur of Yo! China says that his format is present in tier II and III towns as restaurants and food courts because in these centres, acquiring volume is important. Kapur believes that the biggest mistake players make is assuming expansion has to be retail-driven , with the approach invariably being to begin in a mall.

With expansion, these regional players have to contend with establishing a presence in markets with near-zero brand recall. It also means working on distribution, logistics, manpower and understanding unique purchasing behaviour as well.

While foraying into other eastern states was easy for Khadim’s given the presence it already had through its wholesalers, Suman Barman Roy, president, Khadim’s , admits that the move to the southern market in 2000 was a challenge. “Dealing with the different cost structures in terms of logistics, transportation as well as taxes which, in those days, were in wide variance from state to state... Other issues were recruiting and training manpower, setting up a distribution chain, revamping the IT backbone,” explains Barman Roy. He says that in 2000, the company chose to open self-owned outlets to gain acceptance amongst the local vendors, before opting for the franchisee route. Also, each state has specific size assortment requirements , making distribution a logistical nightmare.

Kapur of Yo! China believes that supply chain problem solutions is a high-cost one, and he hopes that riding piggyback on overall retail growth makes distribution easier. “Vendors across India need to be far more innovative. They are currently waiting for retailers to work with them rather than coming up with innovative solutions and products that cater to the food services industry,” he states.

Having acquired scale, most second-tier marketers are looking at new formats. Adamane plans to start a gents-only saloon called Bello — Bellezza is for both sexes — with a low-cost value offering as its proposition. Khadim’s, for its part, has opened a large format department retail called Khadim’s Egaro in Kolkata, which it plans to take it national. Reddy Seelam says that his company is experimenting with smaller shop-in-shops formats of 24Letter Mantra with a national chain, and if successful, wants to rapidly scale up to around 150 shop-inshops by next year.

These tier-two retailers have spent decades polishing their skills and are now limbering up to play in the big league. It’s obvious that not everyone will succeed. Over time, some will falter and would have to go back to the drawing board. A few others will inevitably get acquired by the heavyweights. The most patient , persistent and innovative of the lot, however, will go on to rewrite the rules of the game.

February 6, 2008
Source: Economic Times

Retail eyes industry status

The hype around retail is reaching a crescendo with the organised play projected to touch $30 billion by 2010 from $14 billion currently. But retail, the world’s second oldest institution after family, is grappling with an array of serious issues threatening the big picture.

With consumption at the heart of India’s growth story, retailers expect the Centre to impress upon the states to take a broader view on the sector. As the states have a major say in the affairs of this sector, the Centre’s role is largely to facilitate “the institutionalising of retail”, they say.

However, there are specific issues such as removal of the 12.36% service tax on commercial rentals where the finance minister can play a role in the budget. With soaring real estate rentals threatening to derail the growth engine, many retailers believe the imposition of service tax in last year’s budget needs to be reviewed.

As real estate component accounts for nearly 40% of the operating costs for fashion retailers, many international brands are delaying their India foray in favour of markets like Russia. International retailer Zara, which is unveiling aggressive Russian plans, is a case in point.

Mall rentals across the country have jumped between 30% and 45%. The picture is not different for a large format grocer who works on thin margins.

Retailers argue that states need to decouple the sector from commercial real estate play in tax and regulatory treatment, like the case of differential energy bills for retailers in Mumbai. A different FSI or plot coverage rule for retail would not only soften the rising rental blow immediately, but also go some way in institutionalising the sector. Not surprisingly, it finds expression in retailers seeking ‘industry status’.

“Industry status would provide greater access to funds,” says R Subramaniam, MD of Subhiksha. Agrees Vikram Limsay, MD of Retailduniya, who explains that industry status will help ushering in transparent processes with regard to infrastructure, supply chain variables, financing and insurance.

This would also equip the sector, which employs over three lakh people, to ward off ill-informed protests more effectively. The retail sector also believes that the Centre should take the lead in giving a leg-up to the domestic industry by organising a national shopping festival on the lines of Singapore or UAE.

The Centre could also play a role in readying retail manpower, linking it with the various employment-creation programmes. But the key is how the Centre manages to convince the states to adopt a more pragmatic retail-specific approach, and not just retain the sector as incidental.

February 6, 2008
Source: Economic Times

Big players - plans and investments

RIL Retail gets 1 loyal client on every sq ft

Mukesh Ambani-led Reliance (RIL) group's retail juggernaut seems to be gaining scale uninterrupted, despite hiccups like political protests, going by the success of its the customer loyalty programme.

Reliance Retail, within the four months of rolling out its first store in November 2007, has touched an outlet base of 500 stores in various formats, spanning three million square foot (sq ft) of occupied space in various cities.

This expansion of the retail space has been achieved alongside the company's customer loyalty programme - Reliance One - which has also touched a membership base of three million customers.

The average of one loyal customer per every square foot of retail space is probably the highest and fastest loyalty programme amongst all the retail companies in India, according to industry people who did not wish to be identified.

Reliance One, a pre-paid facility which allows customers to start using it right from the point of purchase, is valid across all the nine different formats of Reliance Retail stores.
Building on the success of Reliance One, the company is also seeking to become "the distributor of choice" for all financial services companies with an all-India footprint at every product level, said an industry source.

February 11, 2008
Source: Business Standard

Reliance Retail plans more format stores

Reliance Retail will see a total investment of Rs 25,000 crore in the next two-three years, said Mr Manu Kapoor, Senior Vice-President, Reliance Retail Ltd. This investment will be for the complete roll out of its entire retail operations.

The company plans to increase the number of various format stores across the country. Of the various format stores, Reliance Wellness, Reliance Super and Hypermart will see the maximum growth. Reliance Super, currently at two, aims to grow to 11 by the end of this year, Reliance Wellness (six) to 20 and Hypermart (two) to 30, said Mr Kapoor.

As part of its expansion plans, Reliance Retail on Thursday launched Reliance Wellness in Chembur, Mumbai. “We already have three such stores in Hyderabad and two in Bangalore. We have received a positive customer feedback, we would therefore want to replicate a similar model throughout the country,” said Mr Kapoor.

The company plans to set up four such stores in the National Capital Region (NCR) by the end of February.

February 8, 2008
Source: Hindu Businessline

Aditya Birla group readies $100-m Family Stores

The $24-billion Aditya Birla group, which has entered the retail bandwagon with big plans, is going to make a $100-million retail splash through its textile and apparel arm Madura Garments this summer.

The company is going to launch a network of ‘Family Stores’ across the country, targeting the value segment. “It will have apparel for all age groups. It would encompass all (brands and products for all). We are working on a branding exercise ahead of the launch,” Mr Vikram Rao, Business Director of Textile and Apparel division, said.
Mr Rao was addressing the international Brand Summit organised here by the Confederation of Indian Industry (CII).

“We are going to open the stores in May-June. We also have plans to focus on the men’s lifestyle range,” he said.

Talking on the branding strategy at Madura Garments, Mr Vikram Rao spoke on the evolution and transition of Louis Philippe. It was positioned as something synonymous with winners, achievers and trendsetters. Defining the brand essence was a key parameter for success. The company recently launched the youth version of Louis Philippe – LP Youth. The new ‘Fashion Formals’ were targeted at the aspirational and successful urban youth.

On the key differentiator that made Madura Garments a success after its acquisition from Madura Coats, Mr Rao said it was the transition from a single product to multiple products.

February 7, 2008
Source: Hindu Businessline

Arvind Mills may demerge retail, brands

After aggressive expansion in brands and apparel retailing, the Lalbhai Group company Arvind Mills has started thinking of demerging the two businesses into separate companies and listing them subsequently.

The Rs2,000 crore textiles firm, which is one of the biggest denim makers in India, has shifted its focus on brands and retailing since last few quarters due to slide in its denim business.

A banker close to the development said Arvind Mills is likely to hive off its retail (Mega Mart) and brands segment (Arvind Brands) into separate companies going forward.  

February 7, 2008
Source: DNA

Food & Grocery

Australian Foods to set up 125 Cookie Man stores

Indo-Australian joint venture Australian Foods (India) Pvt Ltd plans to set up 100-125 Cookie Man stores across the country over the next 3-4 years at an estimated investment of Rs 15-20 crore.

“For starters, we plan to set up 51 stores in 22 cities by end-December. We expect to close 2007-08, with a brand turnover of Rs 22 crore, with plans of doubling the turnover next year,” said Australian Foods (I) president SBP Pattabhi Rama Rao.

He was speaking on Friday on the sidelines of a press meet to mark the launch of Cookie Man’s 26th store in India and the first mother store in east India. Australian Foods (I) Pvt Ltd is a joint venture between Cookie Man Pty of Australia, US private equity investor, Paracor and Mr Rao’s family.

According to Mr Rao, the company already has over 100 stores booked in malls in various stages of construction. “Right now, we sell about 500-600 tonnes, which we plan to scale up to 2000-2500 tonnes in the next three-four years,” he said.

February 9, 2008
Source: Economic Times

Apparel & Accessories

Raymond to strengthen retail presence in towns

Raymond is looking to strengthen its retail presence in Class 4 and 5 towns in the country. Currently, the company operates 92 stores of ‘The Raymond Shop’ in Class 4 and 5 towns. It will add 100-120 stores in two years.

“There is lot of spending on ready-mades in smaller towns, which is mostly driven by occasions such as weddings,” says Mr Aniruddha Deshmukh, President – Retail and FMCG, Raymond Ltd.

Class 4 towns have a population of 50,000 to 1 lakh, while class 5 towns have a population of 1-5 lakh. Raymond is also looking to expand into malls.

Raymond has around 365 Raymond shops in 170 cities. It also has over 100 exclusive outlets of brands such as Park Avenue, Parx and ColorPlus. Raymond also runs 29 stores abroad – in West Asia, Bangladesh and Sri Lanka.

February 10, 2008
Source: Hindu Businessline

India: Koutons makes way for retailing in West Asia

Koutons Retail, an apparel manufacturing company in India has pitched itself to enter the West Asian markets by the end of 2008.

In an exclusive interview with Fibre2fashion, Mr DPS Kohli, Chairman of Koutons Retail India stated, “We are particularly focusing on Middle east markets as also alternatives in China for our overseas expansion.”

By the end of 2010, Koutons is aiming to come up with 1,000 men’s stores and 2,000 Charlie Outlook stores for the youngsters. The company is planning to invest around Rs45 crore for 100 of its flagship stores in around 30 cities.

Recently Koutons raised about Rs100 crore from its initial public offering (IPO) and will utilize Rs55 crore for setting up a new plant including buying land, while Rs10 crore for capital goods and machinery. Besides, Rs5.5 crore will be used for implementation and upgradation of information technology.

February 7, 2008
Source: fibre2fashion.com

Government Policy

Govt may consider FDI in specific retail sectors: Nath

The government may allow Foreign Direct Investment for specific sectors such as electronic and sports goods in retail if an expert study going into the issue foresees no impact on the neighbourhood mom and pop stores.

"We are expecting the ICRIER report on retail by the end of February. Certainly, we can be more flexible in areas of retail like electronics and sports goods. But, I want to see the whole report and make sure what I believe is correct and is backed by a report," Commerce and Industry Minister Kamal Nath told PTI.

Nath said he had commissioned the Indian Council of Research in International Economic Relations (ICRIER) to come out with a study on retail to understand the impact of big retail on the small shops.

"Until I have the ICRIER report, I cannot do (open) retail. I have got to ensure these basic things. The point is that the neighbourhood store should not be hit," he said, adding that the retail has to be seen in a totally India- specific context and not in a general sense.

"Retail in India is not like retail in Malaysia or Thailand," he said.

However, opening sectors like electronics, sports goods, pharmacy and confectionery to FDI would not have an impact on the neighbourhood stores but would instead drive the Indian industry, Nath said.

February 8, 2008
Source: Economic Times

eCommerce

Online jewellery auctions hold promise

Saffronart promotes contemporary Indian art and conducts art auctions online. It sees great interest in jewelry in the auctions space.

Sensing promise in online jewelry auctions, Saffronart recently forayed into this space with a charity jewellery auction sponsored by De Beers and it plans to follow it up with more auctions. From a purely business perspective, the medium offers lot of benefits for jewelers and designers alike, says Ms Minal Vazirani, Co-founder, Saffronart, a Mumbai-based organization.

“An online auction allows a jeweler to reach out to a wider audience compared to a physical auction or private gallery/store sale. Typically in an online auction, there are 500 active bidders vis-À-vis only 50-70 in a physical auction. Online auctions provide a public fair market when you may have multiple buyers; they create both a primary and secondary market (for resale),” she says.

The online auction provides a platform for jewelers and designers to innovate and sell special and high-end pieces. “It lends value to creativity and innovation. Rare pieces find a niche market here,” says Ms Vazirani. She hopes jewelers will soon appreciate this long-term benefit and utilize this medium.

From a consumer point of view, this is a highly transparent system. “With the bidding history available online, bidders can make more informed decisions. It’s a transparent system and one can sense the level of market interest. It builds on the market value attributable to creativity and innovation,” says Ms Vazirani. Besides, it creates pricing benchmarks and market-driven values.

But can jewelry auctions online replace the physical advantages of touch and feel that one gets in a retail environment, especially since it involves big ticket purchases? This issue is similar to buying art through online auctions. These auctions are targeted at a very discerning buyer who knows what he or she is buying - despite the lack of the touch-and-feel experience, explains Ms Vazirani.

Saffronart plans to hold an auction of high-end jewelry in autumn this year. Both international and domestic designers and jewelers have expressed interest in participating in the auction. Target consumers include both existing client base and new clients, i.e. collectors of art and jewelry both inside and outside the country.

February 8, 2008
Source: Hindu Businessline